After Yammer, Microsoft Needs HR Software Play

While rumors about a Yammer deal are getting all the attention, Microsoft really should focus on filling the human resources management system gap in its product line.

As the rumors swirl about Microsoft's possible acquisition of Yammer, and what that means for Microsoft Dynamics and its social computing strategy, I must confess that I'm a bit bewildered. While social is hot and cool and trendy (can you guess how lukewarm I am about this corner of the market?), and has been glaringly missing from Microsoft's enterprise portfolio, I expected the company to make a move into the human resources management system and talent management space first.

The reason I'd have opted to spend a billion or two on HRMS is simple: The business case for social looks pretty solid for early investors but not so solid for early adopters, while the business case for HRMS and talent management just gets better all the time. And with Microsoft positioning its Dynamics offerings, particularly AX and CRM, as enterprise-class products that fit nicely into the larger Azure and Windows 8/Metro picture, the lack of HRMS increasingly looks like a massive strategic gap that needs to be filled.

It's not like Microsoft doesn't understand the problem. In several conversations, Dynamics execs have been quick to point out that AX, NAV, and GP all have HRMS capabilities, but it's pretty obvious these HR modules aren't sufficient for Microsoft's large enterprise aspirations or the needs of many of the Microsoft customers and prospects that I've talked to.

At issue is the fact that HRMS is moving from being the HR department's unique domain to being a strategic linchpin in everything. For example, with demand planning, you need to know if you have the right talent pool to meet customer demand; with product lifecycle management, you need staff using a skunk works approach to design the new product line; and with overall business strategy, you need to plan the right mix of temporary, contract, and salaried employees in order to optimize a new five-year plan.

In this light, Dynamics' lack of strategic enterprise-class HRMS/talent management makes it clear that Microsoft needs to buy its way into this market in a big way. And fast.

So, with the possibility of a Yammer acquisition having sucked the oxygen out of the M&A rumor market last week, let me add some fuel to the M&A fire for the weeks to come. Microsoft needs a major HRMS acquisition, one that fits in well with .NET, Azure, and Dynamics, and has a strong mobile story and a strong software-as-a-service capability.

This Yammer rumor is hardly a diversion--$1.2 billion wouldn't be chump change, even for Microsoft--but I think a bigger HRMS/talent management deal is in the works. It's too obvious a need for Microsoft to ignore.

Josh Greenbaum is principal of Enterprise Applications Consulting, a Berkeley, Calif., firm that consults with end-user companies and enterprise software vendors large and small. Clients have included Microsoft, Oracle, SAP, and other firms that are sometimes analyzed in his columns. Write him at josh@eaconsult.com.

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